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On the Implications of the Markowitz Model of Utility embodying Gain Seeking Preferences for Odds on Betting and Bookmakers choice of Spread or Odds Betting

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  • David Alan Peel

    ()
    (University of Lancaster Dept.Economics)

Abstract

We demonstrate in a parametric formulation of the Markowitz model of utility that unless agents are initially gain seeking they will not bet on heavily odds on favorites for a given negative expected rate of return. The model supports Sauer's (1998) observation that it may not be profitable to make a market in contests involving heavy odds on favorites with implications for bookmakers choice of spread or odds markets in sports betting.

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File URL: http://www.accessecon.com/Pubs/EB/2013/Volume33/EB-13-V33-I2-P133.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 33 (2013)
Issue (Month): 2 ()
Pages: 1420-1428

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Handle: RePEc:ebl:ecbull:eb-13-00302

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Keywords: Markowitz model of utility; Gain seeking preferences; limits to odds on betting; bookmaker choice of spreads versus odds markets; lopsided contests;

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  1. Abdellaoui, Mohammed & Barrios, Carolina & Wakker, Peter P., 2007. "Reconciling introspective utility with revealed preference: Experimental arguments based on prospect theory," Journal of Econometrics, Elsevier, Elsevier, vol. 138(1), pages 356-378, May.
  2. Mohammed Abdellaoui & Han Bleichrodt & Corina Paraschiv, 2007. "Loss Aversion Under Prospect Theory: A Parameter-Free Measurement," Management Science, INFORMS, INFORMS, vol. 53(10), pages 1659-1674, October.
  3. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 3(4), pages 323-343, December.
  4. Rodney J. Paul & Andrew P. Weinbach, 2010. "The Determinants of Betting Volume for Sports in North America: Evidence of Sports Betting as Consumption in the NBA and NHL," International Journal of Sport Finance, Fitness Information Technology, Fitness Information Technology, vol. 5(2), pages 128-140, May.
  5. Woodland, Bill M & Woodland, Linda M, 1991. "The Effects of Risk Aversion on Wagering: Point Spread versus Odds," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(3), pages 638-53, June.
  6. Woodland, Linda M & Woodland, Bill M, 1994. " Market Efficiency and the Favorite-Longshot Bias: The Baseball Betting Market," Journal of Finance, American Finance Association, American Finance Association, vol. 49(1), pages 269-79, March.
  7. Linda M. Woodland & Bill M. Woodland, 2011. "The Reverse Favorite—Longshot Bias in the National Hockey League: Do Bettors Still Score on Longshots?," Journal of Sports Economics, , , vol. 12(1), pages 106-117, February.
  8. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, Springer, vol. 5(4), pages 297-323, October.
  9. Rodney J. Paul & Andrew P. Weinbach & Richard Borghesi & Mark Wilson, 2009. "Using Betting Market Odds to Measure the Uncertainty of Outcome in Major League Baseball," International Journal of Sport Finance, Fitness Information Technology, Fitness Information Technology, vol. 4(4), pages 255-263, November.
  10. David Peel & David Law, 2009. "A More General Non-expected Utility Model as an Explanation of Gambling Outcomes for Individuals and Markets," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 76(302), pages 251-263, 04.
  11. Harry Markowitz, 1952. "The Utility of Wealth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 60, pages 151.
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